BRUSSELS (Reuters) - European Union nations clinched a deal
late on Friday to fund an ambitious satellite navigation
project to rival the U.S. Global Positioning System using
unspent cash from the EU budget, a presidency spokesman said.

The Portuguese spokesman said budget ministers agreed to
finance a 2.4 billion euro ($3.55 billion) shortfall in
start-up costs of the Galileo system by redeploying unspent
money for farm subsidies and competitiveness projects.

"We have an agreement. All the money was taken out of
unspent funds, mostly for agriculture," he said.

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An EU diplomat said Germany, the biggest net contributor to
the 27-nation bloc's coffers, voted against the agreement but
was outvoted.

The presidency spokesman confirmed the decision was not
unanimous but declined to comment on who had voted against it.

The deal came after the European Commission proposed
redividing the tenders for Galileo in a bid to meet German
demands that no one aerospace firm should dominate the project.

The EU executive warned it would have to drop the prestige
industrial project if there was no agreement among member
states on public funding by the end of this year.

Supporters say it is a vital technological platform for
Europe, but critics say it could be a costly white elephant
because the U.S. system already has a dominant market position
and Russia and China are working on their own systems.

Berlin had been blocking the use of unspent EU funds partly
because it feared German firms could be shut out of major work
under the initial tendering scheme, but also out of concern at
the precedent of using unspent funds that would otherwise be
repaid to member states.

TENDER REDIVIDED

To placate Germany, diplomats said EU leaders could issue a
declaration next month pledging that the use of unspent funds
for Galileo would remain an exception.

The total cost of Galileo -- 3.4 billion euro ($5.1
billion) -- is being raised from public funds after private
companies declined to carry the risk.

The Commission proposed redividing the tenders for Galileo
into six segments and barring any company from being the prime
contractor on more than two of them.

"At the moment, there is no member state that showed any
opposition ... so we are convinced that a solution can be found
inside this framework," Michele Cercone, spokesman for EU
Transport Commissioner Jacques Barrot, told a news conference.

He said the Commission aimed for a final deal at an EU
transport ministers' meeting on November 29.

In Berlin, a German Transport Ministry spokesman welcomed
the Commission proposal, saying it would secure competition and
could lead to benefits for German companies.

"If a proposal like that comes through and the financing is
secured, it would offer a decisive benefit for Germany's
aerospace industry," he told a news conference.

A source close to Barrot said the project segments would
include satellites, launchers, ground mission infrastructure
and control, system software, and other tasks.

There would be the possibility of two tenders to build 26
satellites that make up the system, which is expected to have
30 satellites in total.

"The bidder will have to put an offer for all 26, but then
we will contract only for a first batch of 10, for example,"
the source said.

The original consortium of companies charged with building
Galileo included EADS, France's Thales and Alcatel-Lucent.

Britain-based Inmarsat, Italy's Finmeccanica, Spain's AENA
and Hispasat and a German group that included Deutsche Telekom

were also involved but the consortium collapsed after the
firms refused to foot a large chunk of the bill for the
project.

(Additional reporting by Jeff Mason and Yves Clarisse in
Brussels and Madeline Chambers in Berlin)